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It Pays to be Lucky

January 01, 2012

In the mid 1990s, designers at a Scottish video game company called DMA Design were trying out a “race and chase” car game. It wasn’t going well. Test players didn’t like the controls, and the game crashed constantly. Besides, there was a glitch in the code that made police cars go crazy: Instead of overtaking players and pulling them over, the cops would crash into them at full speed. Oddly, though, this was one thing testers liked. So one day it occurred to the designers that — what the heck — they might design a game around their “problem.” “Everybody suddenly went, ‘Hey this is actually pretty cool,’ ” one of the designers explained.

Result: “Grand Theft Auto” has sold more than 17 million copies, becoming one of the best-selling games of all time and turning DMA Design (now Rockstar North) into an industry leader.

Well, you have to think, that was lucky.

Of course, luck can sometimes be bad, turning a seemingly foolproof plan into confetti. Either way, strokes of fortune have a way of keeping leaders up at night. Here you are, working to inspire, educate, anticipate and control, reaping the rewards of your hard work and taking your lumps for mistakes. Fair enough. But a stroke of luck, good or bad, has to make you wonder: How much does skill matter? Or, conversely, how much of leadership success is pure accident? Could luck — the good kind — even be considered an essential trait of a leader, as Napoleon thought. (Before appointing a man to an important post, he would ask, “Is he lucky?”)

By definition, “luck” is a word for consequences leaders can’t explain or control, which might suggest that the whole subject is irrelevant to the principles of executive success. Yet many, if not most leaders are convinced that at least part of their success, reputation and authority arose from chance. It’s a common sentiment among politicians. Even Abraham Lincoln once remarked, “I claim not to have controlled events, but confess plainly that events have controlled me.” But it’s also often said to be true in business and finance. The number of products discovered by accident, after all, is impressive. It includes Post-its, Scotchguard, Teflon, Velcro, nylon, inkjet printers, Ivory soap and many others.

In 2008, a survey of 1,500 people with $500,000 or more in investable assets found that nearly a third had made their money through inheritance or a combination of inheritance and their own work. But even among the majority who had earned their wealth through work, 37 percent agreed with the statement, “The money I have made so far has come from being in the right place at the right time,” according to the poll, which was conducted by PNC Wealth Management.

Leaders have good reason to be wary of overconfidence about how much they can foresee and control. Overconfidence is toxic to success. In a 2005 study of CEOs “who had achieved superstar status via prestigious nationwide awards from the business press,” the economists Ulrike M. Malmendier and Geoffrey Tate found that the executives underperformed after their coronation as “superstars” — with their companies’ records not just dropping back to average but actually deteriorating. In 2011, millions of people affected by the recent global meltdown don’t need reminding that overconfidence has big costs.

Of course, thinking chance determines everything is a confidence killer — it means you can’t be sure there’s any relationship between what you do and subsequent events. And even if you wanted to be this philosophical, it’s practically impossible to see one’s self so passively. The mind has an innate bias to see cause and effect in everything, and an even stronger bias to see itself as important. As Nassim Nicholas Taleb, the author (and former trader and hedge-fund manager), likes to point out, very few of us can accept that we count for little in shaping the events that affect us.

Instead, we prefer to believe that good outcomes arise from skill and bad ones from mistakes. Only much later do subsequent generations see that the real drivers were elsewhere. We are, Taleb argued, “fooled by randomness,” a phrase he used as the title of one of his books. In his 1997 book, “Dynamic Hedging,” he wrote: “If one puts an infinite number of monkeys in front of (strongly built) typewriters and lets them clap away (without destroying the machinery), there is a certainty that one of them will come out with an exact version of the ‘Iliad.’ Once that hero among monkeys is found, would any reader invest his life’s savings on a bet that the monkey would write the ‘Odyssey’ next?” Even Bill Gates, even Warren Buffett, Taleb believes, have been more lucky than adept. We just can’t admit it, he argued in “Fooled by Randomness.” “Just as one day some primitive tribesman scratched his nose, saw rain falling and developed an elaborate method of scratching his nose to bring on the much-needed rain, we link the success of a company with the appointment of a new president at the helm,” he wrote.

Why would people make the same elementary mistake, over and over again — believing, as the title of another recently published critique of overconfidence put it, that “this time is different”? Taleb argues that the cause is an innate penchant for delusion in the human mind. “The more I think about [randomness], the more I see evidence that the world we have in our minds is different from the one playing outside,” he wrote in his most recent and famous book, “The Black Swan.

When the facts don’t permit us to believe we’re in control, we tend to believe in luck as a stopgap against total randomness. In other words, if you can’t feel you’re in control, you might as well feel that fortune favors you. The alternative is a hopeless feeling that nothing you do much matters. And, in fact, a belief in luck does seem to be the sort of psychological trait that protects against mental ills. In a study published in 2003, the psychologists Liza Day and John Maltby found that undergraduates who believed in good luck scored lower on measures of neuroticism and depression, and higher on optimism. In other words, if the facts don’t permit you to believe you’re in control, you’re better off, and likely to be more effective, if you believe that you’ll be lucky.

For millennia, that was, in fact, the default solution for leaders. The idea that leaders can control events is only a couple of centuries old. Until the Enlightenment, most cultures saw leaders as luck’s passive patsies. In medieval Europe, for example, kings and other great men were often shown riding the fickle goddess Fortuna’s wheel, which bore them up and down as she saw fit. But certain advances in the art of gambling put an end to this simple view.

With a better grasp of probability, savants of the 17th and 18th centuries realized that luck, while it could not be controlled, could be managed, prepared for and sometimes predicted. They realized, in short, that leaders needn’t sit quietly on Fortuna’s wheel. Accidents happen, and so do lucky breaks, but the consequences depend on how a leader anticipates these occurrences and copes after them.

This kind of thinking created a middle ground between overconfidence and passive resignation: In the place of Fortuna’s wheel came the notion of an active mind, ready and able to appreciate the opportunity in chance events. English has a word for this meeting of randomness and readiness: serendipity, thanks to Horace Walpole, the 18th-century historian and novelist who coined the word in 1754. It’s one of those highly successful Enlightenment ideas that we don’t appreciate because it’s all around us. According to the anthropologist Iain Morley and the executive consultant Mark de Rond, who edited a recent collection of research on the subject, the word has been voted the most popular in the English language. In science, serendipity’s importance is now almost a cliché, thanks to a famous statement of Louis Pasteur’s, made 100 years after Walpole: “Chance favors the prepared mind.”

Serendipity is certainly a better explanation than blind luck for the genesis of “Grand Theft Auto.” The accidental flaw in the game’s code would have meant only cancellation, if the designers hadn’t been prepared, by long hours of thought and toil and anxiety, to see how their seemingly bad luck could be turned. As the astronomer Andrew C. Fabian has written in Morley and de Rond’s collection, making big advances in his field “is not comparable to buying a lottery ticket and then sitting back but requires a deep familiarity with the sky, the universe, cosmic phenomena and/or physics.”

Similar stories of a prepared mind lie behind Post-its, Ivory soap and the other products famously discovered by “accident.” They and many other discoveries — including aspirin, the Pill, penicillin, laughing gas, vaccination, vitamin K, amphetamine, antihistamines, benzodiazepines, quinine, insulin, sulfa drugs, nitroglycerin, warfarin, smallpox vaccine, electromagnetism, dynamite, the phonograph, X-rays and radioactivity — were the result of accident plus a prepared mind.

Alfred Nobel’s invention of dynamite illustrates the point. In 1866, Nobel was experimenting with nitroglycerin, the main ingredient of the explosives he manufactured for mining and construction. Then he dropped a large vial of the liquid, which should have caused an explosion big enough to kill him. (He had already lost several factories and a brother to nitroglycerin catastrophes.) But the nitroglycerin in the shattered vial didn’t blow up, because it was absorbed by the sawdust on the floor of his workroom. That was lucky. But Nobel saw what this good luck meant for his product: Testing the sawdust, he found that he could make it explode. That meant that blending nitroglycerin with an inert substance would yield a product that could be handled safely until the moment its explosive power was needed. Nobel patented dynamite the following year.

So even if leaders can’t control their environments, they aren’t really passive in the face of random chance. They can master themselves, and put themselves in the best position to make opportunity out of whatever luck has to offer. Even if Warren Buffett owes a lot to luck, he still differs from Taleb’s lucky monkey. Buffett’s success isn’t about any specific stock pick, but rather about his approach to all picks. He famously had a habit, for example, of seeing all his spending as investment opportunities lost. By building future consequences into his viewpoint — for example, envisioning the gains he could have made on saved money so that he would ask himself if he really wanted to pay $300.00 for a haircut — Buffet made himself more capable of seizing whatever opportunities came his way. He left himself open to serendipity. The best leaders do.

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David Berreby (david@davidberreby.com) is the author of “Us and Them: The Science of Identity” (University of Chicago Press, 2008). He writes the Mind Matters blog for Bigthink.com and has written about the science of behavior for a number of leading publications.